Faraday Development Ltd v West Berkshire District Council and St Modwen Developments Ltd [2016] EWHC 2166 (Admin)

The aim of the EU-imposed public procurement regulations is to ensure fair and transparent competition for public contracts. Public bodies, such as local authorities, are allowed to award contracts for works, goods or services only after the procedures prescribed by the regime have been complied with.

To fall within the scope of the procurement regime (which is now enshrined in the Public Contracts Regulations 2015), a contract must have the carrying out of works or the supply of goods or services as its main object.

In this case, West Berkshire District Council wished to regenerate a run-down industrial area situated near the town-centre of Newbury. The council’s aims were two-fold: to regenerate an important part of Newbury by improving the environment and creating additional jobs; and to earn higher rents from those sites within the area that the council itself owned.

The council entered into a development agreement with their preferred development partner, St Modwen. Under this agreement, St Modwen agreed to prepare, for the council’s approval, a master plan for the area and development strategies and appraisals for the various sites within the area, obtain planning consents and draft ground leases for commercial sites and transfers for residential sites.

In return, the agreement gave St Modwen an option to buy the freehold or ground lease of each of the various sites, on terms that included an obligation to redevelop it. St Modwen was under no legal obligation to exercise any option and carry out the works (although it had a commercial incentive to do so, thanks to its substantial commitment to appraising and planning the entire development area).

The judge held that the main object of the agreement was not the carrying out of works (nor, for that matter, for the supply of goods or services). Instead, the main object was to “facilitate” the Council’s regeneration and financial objectives. The procurement regime therefore did not apply.

The judge also mentioned that there is no anti-avoidance principle in the procurement regime. So careful structuring of development agreements (as in this case) can ensure that they fall outside the scope of the regulations.

Faraday (a disgruntled competing developer) has launched an appeal. Watch this space.